I don’t know about you, but we were always told “save 10-20% of each paycheck” and you’ll be fine. So when we found out about FIRE (Financial Independence Retire Early), our minds were blown.
You mean… you can save MORE money faster and retire earlier? You don’t HAVE to work until you’re 65+?
SIGN. US. UP.
Okay, but it’s easier said than done, right?
For those new to the FIRE movement, it’s all about aggressively saving money and investing so that you can become financially independent and retire early (it’s about having the freedom to not work if you don’t want to or to pursue something you’re passionate about). Many people who have reached FIRE continue to work, but in areas that they enjoy rather than feeling stuck in a job to pay the bills.
The moment we realized this is something we wanted to do, we immediately created a document to track our income, expenses, and savings/investments. We did a quick assessment of what percentage we could realistically save after our recurring necessary expenses (rent, utilities, insurance, phone bill, etc.). We set our 2021 savings goal to be 50% of our take home income (the money in our paychecks after taxes are taken out).
After a few months, we’ve become obsessed with saving (and investing) more, and spending less.
Tips for Getting Started
Think About Your Why
Why are you trying to save money? Why do you want to retire early and have financial independence? It’s essential to have a goal in mind and know what you are saving for.
We’re living in a society where it is incredibly easy to spend money. We are consumers. If you don’t know why you’re trying to save, it’ll be too easy to give into the constant purchases floating around you.
If you have a clear goal of what you’re saving for, then you’ll be prepared. When you’re tempted with a $300 online shopping cart, you’ll be able to ask yourself – do I want that $300 to go toward clothes or toward retiring earlier?
Once you figure out how much you realistically need to get by each month and how much you can save, automate your savings. Can you have a certain percentage of your paycheck automatically go towards retirement in a 401k (or something similar)? Can you automatically set aside a certain percentage into a savings or investment account? Automation is great because the money is saved before you even have time to think about spending it.
Before we jump into your finances, it’s time to follow Marie Kondo. You may be thinking, “isn’t this supposed to be about saving money? What does Marie Kondo have to do with this?” Stick with us for a minute.
Marie Kondo is a tidying expert and founded something called KonMari method. The KonMari method is focused on tidying up by category (clothing, books, papers, etc.). You keep items you love and discard items that no longer bring you joy. The point here is to go through your things and get rid of anything that is no longer serving you. If they’re items that can still be of use to others, then you can give them to family/friends or donate them.
What does this have to do with saving? The exercise of going through your items (all your past purchases) and choosing to discard many of them is important. It reminds you of the things that actually make you happy and all the money you spent on things that aren’t valuable to you. Don’t feel too depressed here. Let this exercise inform your purchasing decisions moving forward. When you’re buying something from this point forward, ask yourself, “Is this something I need? Will I actually use this regularly? Or will it end up in my discard pile in a few months?”
Audit Your Finances
Track your expenses (yes, everything). It doesn’t have to be any place fancy. You can just use a spreadsheet and have a column for expense, category, and cost. Create a chart that sums up the totals in each category. Now do an audit. Where are you spending the most? Does anything surprise you?
Before becoming obsessed with FIRE, we never considered tracking every single expense together. But putting everything you buy on “paper” makes you more mindful about your spending. Anytime I’m thinking about buying something, I know it’s going to end up in a spreadsheet that Aaron and I review together. It makes me think twice about if I really need that item or if it’s an extra purchase that can be avoided.
When you look at your expense audit, are there things on the list that can completely be eliminated? You may find some large purchases on there, but most likely you have a lot of seemingly small expenses that really add up. Target blackouts, binge online shopping sprees, recurring subscriptions you never use?
The two biggest expenses that come to mind are rent and vehicles. If you’re not already living together, you may want to consider moving in together for the financial benefits. Eliminating half of rent payments by sharing it with your significant other? It’s a great deal. Another great deal? Sharing a car. Don’t get me wrong, there are definitely benefits to having your own car. However, think about how often you both actually use your own cars and consider if you’d be able to get by with sharing a vehicle.
Once you’ve cut out the unnecessary expenses, it’s time to take a look at your other expenses. If they can’t be eliminated, can they be reduced? Think about categories like groceries, food delivery/dining out, entertainment, and travel.
Create a Game Plan
Saving is an ongoing activity. It’s not a one and done. Once you go through a few of these exercises, determine regular points to check in. We recommend at least checking in at the end of each month (if not more often). Our game plan includes setting time aside at the end of each month. We track all of our income from the month, our expenses, and where our investments are at. We see how close we are to our savings goal, and analyze where we spent the most money in the last month (on things that weren’t necessities). Did we eat out more than planned? Did we spend more on entertainment? What areas can we pull back next month? Having a plan helps to make sure you’re staying on track toward your savings goal!
We hope these tips help you get started on your journey to FIRE! Stay tuned for our next money blog and let us know if there are certain topics you want to hear about. We’ll continue to share our experience toward FIRE and ways we’re saving/investing.
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